Crude glut: A lesson in supply and demand : Running Out Of Storage

A LESSON IN SUPPLY AND DEMAND

Oil traders are growing increasingly nervous that a glut of crude will send prices into a tailspin.
5 ways surplus oil will affect us

Oil storage tanks in the United States have been filling rapidly as companies there contribute to produce more crude than refiners can process. As a result, the price differential between U.S. crude and international sources has widened considerably, once again providing a “North American” discount to the market.

North American motorists will like it

With rising inventories in key locations, refiners will be able to access cheaper crude and will pass at least some of those savings along to consumers. But refiners on the east and west coasts have limited access to cheaper North American crude and won’t feel the benefit as much as those who live in the mid-continent.

U.S. producers will fear it

With more crude in storage, oil companies are essentially competing with their own past production. And as space in the tanks become more scarce, producers will be forced to sell their current output at steep discounts, driving prices down further. Even as demand picks up in response to lower pump prices, the huge volume of inventories will moderate any rebound in crude prices.

American politicians will debate it

The boom in U.S. crude production has already prompted talk in Washington about lifting the 40-year-old ban on crude oil exports from the lower 48 states. As producers fill up available storage, the calls to end the prohibition (which does not include exports to Canada) will grow louder and more desperate.

Canadian producers will be sideswiped by it

Canadian crude prices are set in relation to the price of West Texas Intermediate, which is set in Cushing, OK., site of a major storage hub that is brimming with crude. Since U.S. crude is a “light” variety, Canadian oil sands producers are still seeing healthy demand for their “heavy” barrels. But their prices are being hammered down.

American environmentalists will seize on it

In the long-running debate over the Keystone XL pipeline, the Canadian government has sold the project as contributing to U.S. energy security. Opponents of the pipeline will point to the surplus production as another reason that the pipeline is unnecessary and should be turned down

Calgary’s Enbridge Inc. owns the largest oil storage facility at the continent’s most important location for such things, but it is a commercial secret as to how close its tanks are to full capacity.

In the past three years, as the U.S. oil boom took off, Enbridge expanded its tank farm in Cushing, Ok., by a third so that it can now store 20 million barrels of crude. Cushing is a strategic location: It is a hub for the web of pipelines that crosses the U.S. plains but is also the continent’s largest crude storage centre.

In recent weeks, oil traders have grown increasingly nervous that a growing glut of oil could overwhelm North America’s capacity to store it, and that we’ll soon run out of places to put it. If that occurred, prices would go into a tailspin and the industry would be forced to shut off their wells until growing demand caught up to shrinking supply.

The storage picture is opaque – clouded by companies’ commercial sensitivities and time lags in U.S. government data. Enbridge stores crude for its own account and on behalf of customers who profit by buying oil at today’s low prices and then re-selling it at a higher price on the futures market for delivery at some later date.

“Demand for commercial tank storage today is high since the future expected price of oil is higher than it is today so investors are looking to build up supplies in North America,” Enbridge spokesman Graham White said in an e-mailed statement. “Enbridge works with commercial storage clients to accommodate their requirements.”

Market fears were heightened late last week when the Paris-based International Energy Agency said that rising U.S. supply “may soon test storage capacity limits.” The warning prompted another selloff in oil markets, with North America’s key benchmark, West Texas Intermediate (WTI), falling to six-year lows Monday, down 2 per cent to $43.82 (U.S.) a barrel. That’s the lowest price for WTI since the depths of the great recession of 2008-09.

“The U.S. is a-flood with oil and other production points around the world are not letting up in their output. The question is how much more oil can we take before the storage tanks hit capacity?” said Gene McGillian, senior market analyst at Tradition Energy in Stamford, Ct.

For Canadians, the storage issue has broad ramifications.

Another round of price cuts would further cripple Alberta’s already-struggling oil industry, and blow an even larger hole in the province’s finances, as Premier Jim Prentice prepares to release his first budget since taking office in September. Federal Finance Minister Joe Oliver has delayed Ottawa’s budget until at least April in order to get a better sense of how falling oil prices will hit the Canadian economy.

For consumers, the further decline in crude prices offers more relief at the pump with prices again dropping below $1 per litre in major Ontario markets, while at the same time, undercutting the value of the Canadian dollar.

But some analysts argue the fears are overblown.

“Yes, the U.S. has seen unprecedented growth in crude stocks this year,” said Afolabe Ogunnaike, a Houston-based analyst with Wood Mackenzie, an international consulting group. “But we still think there is significant amount of storage capacity available.”

He said U.S. inventories have gown by 66.5-million barrels since the beginning of the year, but estimates there is still room to store another 200-million barrels. Meanwhile, the pace of the stock build-up should slow as refineries, which were down for seasonal maintenance, resume operations to prepare for the summer driving season. And as the industry reacts to lower prices by cutting drilling and other spending, it will soon begin to show up in lower production.

The U.S. energy department reported in February that crude storage capacity is 60 per cent full, and the figure has climbed a few percentage points since then. But the situation varies widely across the country and within Canada. The largest tank farms are close to production facilities, as in Cushing, or Hardisty, Alta. Or on the U.S. Gulf Coast, which is close to Texas producers and Gulf of Mexico producers and serves the world’s largest refining centre.

The U.S. separates the country into districts known as “PADDS – for Petroleum Administration Defence Districts, which were created during the Second World War for logistical purposes. PADD 1, for instance, is the East Coast, which has a large refining sector that relies heavily on imported crude and has little storage capacity beyond the refineries themselves. The East Coast market for petroleum products heavily influences the pump prices paid by consumers in Eastern Canada.

The key regions for storage are PADD 3, which includes the U.S. Gulf Coast, and PADD 2, which contains Cushing and the Midwest, where the vast majority of Canada’s record exports to the U.S. are headed. As of March 6, the U.S. Energy Information Administration (EIA) calculated that PADD 2 storage was 73-per-cent full, while PADD 3 was at 59 per cent. For technical reasons, many storage facilities can’t go above 80-per-cent capacity.

Oil storage tanks in Linden, N.J. are shown in this aerial file photo of Aug. 29, 2007. (The Associated Press)

The PADD 2 market is particularly important for Canadian producers, who have growing — but still limited ability — to reach the Gulf Coast. The International Energy Agency warned that should storage capacity in the Midwest reach its limits, Canadian exports would suffer.

However, refiners have invested heavily in equipment required to process the heavy-diluted bitumen that is produced in the oil sands and are keen to maintain those imports, said Greg Stringham, vice-president of the Canadian Association of Petroleum Producers.

Analysts note that Washington is working with out-dated numbers for storage capacity. The energy administration last updated its capacity estimates in September, and will do so again in March.

“Crude oil stocks are rising everywhere in North America,” said Hillary Stevenson, manager of supply chain network for Genscape, an energy-market consulting firm. “But there’s been considerable growth in capacity, especially on U.S. Gulf Coast since September . . . so things maybe aren’t as full as people are thinking, especially on the Gulf Coast. We do have some time to absorb this growing supply glut that we’re having.”

But there is still an incentive for investors to store crude, though companies such as Enbridge are raising prices at their tank farms. The speculators are taking advantage of a condition in the futures market called contango, when prices for immediate delivery or next month are considerably below those for later months.

On the market yesterday, one could buy a barrel of crude for April delivery for $43.79 (U.S.) a barrel, and then resell it for delivery a year from now for $55.55. So if storage for the year costs less than $12 a barrel, you stand to make a profit.

Earlier this winter, traders were anticipating the same type of transaction using supertankers. In 2009, an armada of supertankers are leased, filled with crude and left at anchored for delivery at higher prices later. But this year, international crude prices have not seen the same steep differential in the futures markets, so the sea-borne market never developed.

But there is another source of “storage” that is not as accessible as the oil in tanks but still represents a future challenge for producers. In the prolific shale oil fields of Texas and North Dakota, many companies are drilling wells but not doing the final work need to bring them into production.

As above-ground storage begins to reach its limits, more firms will decide not to complete the wells they are now drilling. The glut will be buried, but not dead.

 

BMO Warns Oilsands Must Cut Costs

The cash costs of oilsands producers must shrink to remain competitive in the “new normal of lower oil prices for longer,” BMO analyst Randy Ollenberger said in a note Monday.

Canadian heavy oil prices fell below US$30 for the first time in more than six years as Bank of Montreal warned that oilsands producers must cut costs.

Most producers will continue producing from existing operations and complete projects under construction

Ryan Jackson/Postmedia News
Energy companies are tightening their belts in the oilsands, slashing budgets, scrubbing and delaying projects, and laying off scores of contract workers.

With oil hovering around US$50 a barrel, the bounce is suddenly missing from Fort McMurray’s step.

Hotel rooms, typically tough to find, are readily available. About $100,000 has been trimmed from the average selling price of a single, detached home in the past year. People are lining up at the food bank in numbers previously unseen. More staff is being hired and food drives are being planned in hope of keeping up with demand. More donations than ever are coming in, but nowhere enough, executive director Arianna Johnson says.

 

Western Canadian Select fell 59 US cents to US$29.85 at 12:28 p.m. Mountain time, the lowest since Feb. 18, 2009, according to data compiled by Bloomberg. The grade’s discount to U.S. benchmark West Texas Intermediate narrowed 80 US cents to US$13.60 a barrel. Crude futures settled at a six-year low of US$43.88 in New York on concern record supply may strain storage capacity.

The cash costs of oilsands producers must shrink to remain competitive in the “new normal of lower oil prices for longer,” BMO analyst Randy Ollenberger said in a note Monday. The majority of Canada’s crude comes from oilsands in Northern Alberta and is among the most expensive to produce. Companies including Royal Dutch Shell Plc and Cenovus Energy Inc. have cut costs and suspended projects as prices plunged.

“You will see companies do another round of budget cuts if oil settles in the low 40s,” Ollenberger said.

Crude from oilsands is produced from bitumen, which must be dug or pumped out of the ground after it’s melted by steam. The bitumen is upgraded to lighter synthetic crude or is diluted with condensate and shipped by pipeline or rail car thousands of miles to refineries, most in the U.S.

Shell withdrew an application to develop the Pierre River mining project to focus on existing ones, Shell Canada President Lorraine Mitchelmore said in a statement last month. Cenovus suspended construction on Christina Lake Phase G with work to resume when market conditions improve, Chief Operating Officer John Brannan also said last month. Both companies, along with Suncor Energy Inc, have also cut staff to reduce costs.

Cost Savings

Major sources of costs savings that may have been overlooked include lower royalty rates and reduced blending costs, Ollenberger said in his note Monday. Per-barrel costs can be cut with increased production through existing facilities, he said.

Canadian Oil Sands Ltd., among the largest five producers, needs a WTI price of about US$50 a barrel to sustain business with no production declines, Chief Financial Officer Robert Dawson said March 11. Smaller companies are facing financial troubles. Southern Pacific Resource Corp. has defaulted on debt and Connacher Oil and Gas Ltd. says it’s in danger of not being able to pay creditors.

Canada’s oilsands production will grow 8.3% this year, the country’s National Energy Board said Feb. 10. Projects to extract bitumen require billions of dollars of up-front investment.

Most producers will continue producing from existing operations and complete projects under construction, Jackie Forrest, vice president of Calgary-based ARC Financial Corp., said in a Jan. 29 e-mail.

WTI crude would have to stay between US$30 and US$35 a barrel for at least six months before wells and mines are shut, Dinara Millington, a vice president at Canadian Energy Research Institute, said Feb. 19.

Penn West Petroleum Ltd. : Long Time of Hardship Continues

Image result for oil price cartoons

Dividend: Q1 2015

CDN: $0.01

 

TSX : PWT

$1.81

Change : $ -0.10 (-5.236%)
Vol : 4701451

NYSE : PWE

$1.42

Change : $ -0.10 (-6.579%)
Vol : 7229947

Tremendous potential – but they used to say the same thing about me.The rout in crude oil is turning out to be more than just a blip, and producers that are feeling the pinch may have to start selling – and Jack A. Bass  predicts a further decline.

 

The struggle to outlast sub-economic oil prices took another ugly turn Thursday as Penn West Petroleum Ltd. all but eliminated its once-hefty dividend and started discussions to ease the terms of its debt.

The restructured company has gotten so lean, CEO David Roberts said it now offers great “torque” on an oil price recovery.

“The management of this company and the board are strongly aligned with shareholders, with significant amount of personal capital at risk, and focused on redefining oil and gas excellence in Canada,” Mr. Roberts said on a conference call to discuss fourth-quarter results.

But the latest measures continue a long time of hardship at Penn West, which over the past year has undergone a major restructuring to cut costs and re-invent itself as a low-cost producer focused on three conventional light oil plays in Alberta, then had to address an accounting scandal involving previous management that led to a re-examination of financial results for 2014 and four previous years.

By December, just after Mr. Roberts thought the company had finally “turned the corner,” oil price collapsed and “served to overpower our 2014 results,” he said in the call.

Though “we think our path to success is firm,” the company ended the year with a loss of $1.77-billion in the fourth quarter, compared to a loss of $675-million in the same year-ago period, largely due to impairments of goodwill and property, plant and equipment tied to the decline in commodity prices.

Cash flow shrunk to $137-million from $203-million in the same period a year ago.

“Looking ahead, clearly we as an industry are facing a dramatically different commodity price environment today relative to this time last year,” Mr. Roberts said in a statement.

“Operations aside, with crude oil prices ranging between approximately US$43 per barrel and US$55 per barrel since the beginning of 2015, there is now a clear focus on leverage and the balance sheet. At year-end 2014, Penn West was well within its debt covenants, with a senior debt to EBITDA ratio of 2.1 times against a limit of 3.0 times and we were undrawn on our $1.7 billion credit facility.

However, if crude oil prices persist below US$50 per barrel in to the second half of 2015, we do foresee potential challenges complying with our covenants.”

That’s why the highly leveraged company started discussions with lenders and note holders, said CFO David Dyck.

It now has an agreement in principle to ease its financial covenants that involves reducing its $1.7-billion bank facility to $1.2-billion and using up to $650-million of proceeds from asset sales to pay down debt.

In a research report, RBC Dominion Securities Inc. analyst Greg Pardy said the “relaxation of the covenants is positive and will provide the company with additional time to proceed with asset dispositions.” Penn West shares closed at $1.91 in Toronto, down 2¢. The stock has lost 80% of its value in the past year.

To save cash, Penn West, which had a large retail investor base from its past as an income trust, is cutting its dividend to 1¢ a share, from 3¢ expected for the first quarter, down from 14¢ in the fourth quarter of 2014. The company said the reduction is temporary.

Companies across the Canadian sector have cut spending, laid off staff and raised equity and debt to cope with sub-US$50 a barrel oil prices, the result of a price war instigated by Saudi Arabia to take back market share from North American producers. With the latest measures, Penn West is taking the belt-tightening to a new level.

Mr. Roberts said lenders’ decision to “stand with us” through tough times is a result of the company’s successful restructuring.

Penn West sold $1 billion in non-core assets as part of its restructuring and would like to sell more. It plans to invest $650 million this year, primarily directed at its Cardium and Viking core areas, and deliver production of about 100,000 barrels per day.

The adjustments may not even be over. With oil price volatility continuing, spending will be reviewed again in the spring, Mr. Roberts said.

Oil Continues to Fall, and OPEC Isn’t Helping

February 23, 2015

It was another down day in the oil market: Crude prices fell more than 2 percent, with WTI finishing Feb. 23 below $50 a barrel for the first time in almost two weeks.For a moment, things looked like they might go the other way. OPEC President Diezani Alison-Madueke said in a Financial Times report that she would call an emergency meeting of OPEC if prices continue to fall. Oil prices were buoyed by the news—briefly—until they fell again.

In addition to being president of OPEC, Alison-Madueke serves as Nigeria’s oil minister, and cheap oil has helped sow crisis in her country. The Nigerian currency, the naira, is at all-time lows against the dollar, terrorist attacks by the Islamist group Boko Haram have worsened, and national elections were recently postponed more than a month. It makes a lot of sense that Nigeria would want to put a floor under oil prices by hinting at an OPEC resolution—even if such a resolution is unlikely.

Some reasons for doubt:

  1. Another OPEC delegate told Bloomberg News today that OPEC has no plans to hold an emergency meeting. OPEC is scheduled to meet in June, and all 12 members must agree to hold a special meeting in the interim.
  2. It’s unlikely that Saudi Arabia, OPEC’s biggest producer, would agree to such a meeting, not to mention actually cutting production. Saudi Oil Minister Ali Al-Naimi has said OPEC won’t change course even if prices go to $20 a barrel.
  3. Even if a meeting were called, it’s not clear whether OPEC is capable of mustering support to cut sufficient production to boost prices. It would require imposing a shrinking market share for oil-dependent economies that are already stretched.
  4. Even if OPEC members were to cut production enough to increase oil prices, how would the legions of U.S. oil producers respond? Probably by putting all those idled rigs back into action, adding more supply to the market and undermining OPEC’s efforts.

In oil markets, perception is everything. It’s very possible that today’s talk of an emergency meeting was simply meant to reassure unstable markets. Sometimes the threat of taking action removes the need for taking action.

If that’s what happened, it comes at a risk for OPEC. The fact that markets brushed off the threat so quickly may imply that OPEC’s threat is losing credibility.

 

Canadian Oil Sands Output Growth Defies Prices : Increases Output -and more to come

Athabasca Oil Sands
Athabasca Oil Sands
A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada, on June 19, 2014. While production from forests of Northern Alberta started in the 1930s, output didn’t ramp up until the late 1960s and 1970s after companies including Suncor Energy Inc. and Syncrude Canada Ltd started operation.
U.S. Oil Production Increases The Most Since 1993

(Bloomberg) — The deluge of Canadian oil that’s adding to a global glut and driving prices lower is showing few signs of slowing.
Even with crude down 52 percent since June, output will grow 3.5 percent this year from the world’s fifth-biggest producer. The Canadian dollar is near a six-year low and materials cost less, helping oil sands producers cut costs and keep pumping. Oil would have to stay between $30 and $35 a barrel for at least six months, down from about $50 now, before wells and mines are shut, according to the Canadian Energy Research Institute.
Surging North American production has contributed to a global glut, pushing U.S. supply to the highest in three decades. OPEC opted in November to maintain output to hold on to market share. Oil sands supply is growing even as the number of rigs drilling for oil in the U.S. has fallen to the lowest in almost four years. RBC Dominion Securities estimates that oil companies have cut $86 billion from spending plans.
“We are above the price where existing projects” get shut down, Robert Johnston, chief executive officer of risk consultants Eurasia Group, said in Calgary Feb. 4. “Even projects that are under construction will continue.”
Western Canadian Select, the heavy crude that serves as the benchmark for oil sands, traded at $37.10 a barrel, according to data compiled by Bloomberg. It was $13.50 below West Texas Intermediate, the U.S. benchmark.
Lower Oil
Canada exported 2.93 million barrels a day in the third quarter, 97 percent to the U.S., National Energy Board data show. Canadian production will rise to 3.89 million barrels a day this year, according to the board. Conventional crude and condensate will drop 3 percent, while output of oil sands and upgraded synthetic crude will grow 8.3 percent.
Oil sands companies extract bitumen, a thick hydrocarbon, either by shoveling it from mines or injecting steam into the ground to melt it and then pumping it out. While production from forests of Northern Alberta started in the 1930s, output didn’t ramp up until the late 1960s and 1970s after companies including Suncor Energy Inc. and Syncrude Canada Ltd started operation.
Break-even costs have fallen 18 percent from a year ago and range between $25 a barrel for producers who use steam and $40 for the mining operations, according to Bank of Montreal estimates. This compares with $10 to $25 estimated by the Paris-based International Energy Agency for conventional Middle East and North African producers.
Smaller Producers
WTI fell 82 cents to $50.34 a barrel on the New York Mercantile Exchange. The U.S. benchmark will drop to $39, Jeff Currie, Goldman Sachs Group Inc.’s New York-based head of commodities research, said Thursday in an interview on Bloomberg Television.
Some Canadian output from smaller producers who have to borrow money may be at risk, Juan Osuna, IHS Energy Inc.’s senior director for North American oil, said by e-mail Feb. 10. Oil sands explorer Laricina Energy Ltd. said last month it was in default.
The Alberta oil sands growth parallels the Gulf of Mexico, another region where producers have invested for the long term. Offshore rigs will rise 30 percent this year compared with 2014, according to data from Wood Mackenzie, an industry consultant.
Canadian Oil Sands Ltd., the main owner of the Syncrude Canada mining project, expects to spend C$40.19 ($32.16) a barrel this year producing synthetic crude from oil sands, down from a previous forecast of C$45.69. Production is forecast to rise 8.9 percent this year.
Global Players
Suncor, which cut oil sands operating costs 6.5 percent in the fourth quarter from a year earlier, is proceeding with its Fort Hills project, scheduled to begin production in 2017 and ramp up toward 180,000 barrels a day. This comes after Suncor said it will cut 1,000 jobs and lower its 2015 capital budget by about 13 percent.
Imperial Oil Ltd. said Feb. 2 it will examine costs and capital investments even as it plans to double output from its C$20 billion Kearl oil-sands project in Alberta and boost production from the Nabiye facility this year.
While starting an oil sands project now wouldn’t be economical, companies will push ahead with those under construction and projects already operating will continue, Jackie Forrest, vice president of Calgary-based ARC Financial Corp., said in a Jan. 29 e-mail.
New Capacity
While it can take years for a new oil sands operation to ramp up to full production, a total of 423,000 barrels a day of new capacity is under construction and scheduled to be in operation this year, up from 116,000 barrels added last year, according to data published in Alberta’s winter 2015 Oil Sands Industry Quarterly update.
Most of the oil sands companies are “global players” and “they can afford to operate at a loss within the oil sands area,” Dinara Millington, a vice president at CERI, said by phone yesterday.
Oil sands miners would have to spend billions of dollars on reclamation of tailing ponds if they shut, she said. “It’s not as simple as turning off a truck or shutting in a well.”

Next For Oil: Mergers, Layoffs and ‘Death Spirals’

CNBC

Next for oil: Mergers, layoffs and 'death spirals'
.

Getty Images

The oil industry may be getting pinched by falling prices , but the next year could be a busy and lucrative time for private equity firms and restructuring specialists working in energy.

With crude prices nearly 60 percent off their highs , experts foresee a wave of corporate restructuring and acquisitions playing out over the next 12 to 18 months. Oilfield services companies are set to absorb smaller firms, while exploration and production companies could face a “death spiral” as their access to debt dwindles.

In December, Deutsche Bank analysts projected that U.S. shale producers “could be entering a zone of deep distress” once oil dipped below the $60 to $55 range.

 

“If prices were to stay sustainably below these levels for a few months/quarters, chances of a broad sector restructuring increase materially,” they wrote.

U.S. crude first settled below $60 on Dec. 11 and fell below $55 the following week. U.S.-traded West Texas Intermediate was near $44 on Thursday, while internationally traded Brent crude was close to $49.

“You’re pretty much in the top half of the first inning in the oil and gas sector,” George Koutsonicolis, managing director at SOLIC Capital Advisors, told CNBC. “Definitely, I expect there to be a pretty significant round of restructuring.”

That restructuring will come not just in the form of layoffs and cost cutting, but in capital restructurings in possible bankruptcy court cases, he said.

 

The job cuts have already begun to roll in from big oilfield services companies.

Last week, Baker Hughes (BHI) announced it would lay off 7,000 employees, or about 12 percent of its workforce. The same day, Halliburton (HAL) told investors to expect more reductions on top of a previously announced 1,000 cuts. Earlier in the month, Schlumberger (SLB) said it would shed 9,000 jobs.

BP (London Stock Exchange: BP.-GB)announced in December it would spend $1 billion and shed thousands of positions as part of a restructuring.

SOLIC now has its eye on oilfields services companies with high debt and poor capital structures.

The large oilfield companies are likely to scoop up weaker middle-market players, Koutsonicolis said. They will be on the hunt for firms with overlapping regional operations and back-office functions, two factors that will immediately add to earnings.

The fate of those firms is tied in part to exploration and production companies, for whom they provide infrastructure, specialized equipment, transportation and other services. Cost-cutting and reductions in revenue-generating activities among E&P companies eventually bleed into the oilfields services sector, forcing them to take similar measures.

 

Capital investment in the energy industry has decreased by about 23 percent, according to SOLIC.

Exploration and production companies have largely funded growth by borrowing on the high-yield debt market. The energy sector accounts for 17.4 percent of the high-yield bond market, up from 12 percent in 2002, according to Citi Research.

Now, the value of E&P firms’ primary asset is depleting, so banks are willing to lend them less money, and liquidity is drying up.

 

“Given the situation we’re in, the access to that high-yield debt will be somewhat impeded for some players,” Koutsonicolis said. “It’s kind of a death spiral for some of these firms.”

Exploration and production companies will typically restructure as a last resort, said John-Paul Hanson, head of Houlihan Lokey’s exploration and production practice. Instead, he told CNBC, they will try to weather the low commodity price market through financing and mergers and acquisitions activity.

The companies undergoing restructuring and bankruptcy filings at this point in the cycle lacked liquidity or had balance sheet constraints prior to the decline in commodity prices, he said. Low commodity prices effectively pushed them into restructuring because other solutions-such as tapping senior secured debt or selling assets-were not possible.

Hanson expects an uptick in M&A activity, but said sales of assets such as oilfield rights are more likely than outright buyouts of companies. That is because the value of E&P companies is in the underlying assets, not their corporate entities.

“The difficulty with oil and gas is you’re tied to the underlying commodity. E&P businesses really are just asset businesses,” he said.

 

While some companies may embark on mergers to achieve economies of scale, firms are more likely to sell noncore assets and unproductive oilfield acreage to increase cash flow and alleviate the cost of keeping them on the books. Those assets may find a home with another company that considers them core to their operations.

In the end, however, some oil and gas companies may not have a choice but to restructure, as they find it increasingly difficult to maintain cash flow while the cost of crude remains low, but while land-leasing and corporate expenses persist.

“The longer that we stay in a protracted, depressed price environment, the more likely it is that restructurings will be pervasive,” Hanson said.

 

Now it is up to you to act on this information

Contact Information:

To learn more about asset protection,  offshore company formation and structure your business

interests overseas ( at no cost or obligation)

Email info@jackbassteam.com  OR

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Telephone  Jack direct at 604-858-3202 for a  one  half hour no fee consultation.

10:00 – 4:00 Monday to Friday ( same time zone as Los Angeles).

 

Ten countries are islands famed for having no corporate income tax:

Bahamas, Cayman Islands, British Virgin Islands, and Bermuda – we know more

low or no tax jurisdictions.

The most important thing that you MUST do is seek advice from a qualified

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In most jurisdictions you can set up your offshore company in as little as

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Here are the tax rules we use to eliminate tax on royalty and IP income –

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HOW DO APPLE AND STARBUCKS AVOID US TAXES ON ROYALTIES AND IP ?

from http://www.youroffshoremoney.com

(b) Exclusion of United States income

In the case of a controlled foreign corporation, subpart F income does not

include any item of income from sources within the United States which is

effectively connected with the conduct by such corporation of a trade or

business within the United States unless such item is exempt from taxation

(or is subject to a reduced rate of tax) pursuant to a treaty obligation of

the United States. For purposes of this subsection, any exemption (or

reduction) with respect to the tax imposed by section 884 shall not be

taken into account.

(c) Limitation

(1) In general

(A) Subpart F income limited to current earnings and profits

For purposes of subsection (a), the subpart F income of any controlled

foreign corporation for any taxable year shall not exceed the earnings and

profits of such corporation for such taxable year.

HOW DID ROMNEY ACCUMULATE $ 250 MILLION IN THE CAYMANS – what can you do

to repeat his success ? – again quoting from the U.S. Tax Code:

(3) Special rule for determining earnings and profits

For purposes of this subsection, earnings and profits of any controlled

foreign corporation shall be determined without regard to paragraphs (4),

(5), and (6) of section 312 (n). Under regulations, the preceding sentence

shall not apply to the extent it would increase earnings and profits by an

amount which was previously distributed by the controlled foreign

corporation.

Oil Extends Drop : Worsening Glut – With Oil Companies and Investors In Denial

Oil extended losses to trade below $45 a barrel amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years.

Futures fell as much as 2.6 percent in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group Inc. said crude needs to drop to $40 a barrel to “re-balance” the market, while Societe Generale SA also reduced its price forecasts.

“There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

West Texas Intermediate for February delivery decreased as much as $1.19 to $44.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $44.94 at 2:26 p.m. Singapore time. The contract lost $2.29 to $46.07 yesterday, the lowest close since April 2009. The volume of all futures traded was about 51 percent above the 100-day average.

U.S. Supplies

Brent for February settlement slid as much as $1.31, or 2.8 percent, to $46.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.24 to WTI. The spread was $1.36 yesterday, the narrowest based on closing prices since July 2013.

U.S. crude stockpiles probably rose to 384.1 million barrels in the week ended Jan. 9, according to the median estimate in the Bloomberg survey of six analysts before the Energy Information Administration’s report. Supplies have climbed to almost 8 percent above the five-year average level for this time of year, data from the Energy Department’s statistical arm show.

Production accelerated to 9.14 million barrels a day through Dec. 12, the most in weekly EIA records that started in January 1983. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

OPEC Output

The U.A.E. will continue plans to boost its production capacity to 3.5 million barrels a day in 2017, Al Mazrouei said in a presentation in Abu Dhabi yesterday. The country currently has a capacity of 3 million and pumped 2.7 million a day last month, according to data compiled by Bloomberg.

OPEC, whose 12 members supply about 40 percent of the world’s oil, agreed to maintain their collective output target at 30 million barrels a day at a Nov. 27 meeting in Vienna. Qatar estimates the global surplus at 2 million a day.

In China, the world’s biggest oil consumer after the U.S., crude imports surged to a new high in December, capping a record for last year. Overseas purchases rose 19.5 percent from the previous month to 30.4 million metric tons, according to preliminary data from the General Administration of Customs in Beijing today. For 2014, imports climbed 9.5 percent to 310 million tons, or about 6.2 million barrels a day.

Oil Companies and Investors In Denial : Portfolio Profits At Risk

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

Oil Producers Betting on Price Drop : Goldman Calls $ 40

Photographer: Gabriela Maj/Bloomberg

The oil industry was listening as OPEC talked down crude prices to a more than five-year low.

Drillers, refiners and other merchantsincreased bets on lower prices to the most in three years in the week ended Jan. 6, government data show. Producers idled the most rigs since 1991, with some paying to break leases on drilling equipment.

Companies are hedging more and drilling less amid concern that the biggest slump in prices since 2008 will continue. Oil dropped for a seventh week after officials from Saudi Arabia, the United Arab Emirates andKuwait reiterated they won’t curb output to halt the decline.

Oil Prices

“Producers are desperately hedging their production in a drastically falling market,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by phone Jan. 9. “They’re trying to lock in prices because they are convinced that the market will stay down for a while.”

WTI slid $6.19, or 11 percent, to $47.93 a barrel on the New York Mercantile Exchange on Jan. 6, settling below $50 for the first time since April 2009. Futures for February delivery declined $1.53 to $46.83 in electronic trading at 8:09 a.m. local time.

OPEC Production

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, has stressed a dozen times in the past six weeks that it won’t curb output to halt the rout. The U.A.E. won’t cut production no matter how low prices fall, Yousef Al Otaiba, its ambassador to the U.S., said at a Bloomberg Government lunch in Washington on Jan. 8.

The group decided to maintain its collective quota at 30 million barrels a day at a Nov. 27 meeting in Vienna. Output averaged 30.24 million barrels a day in December, according to a Bloomberg survey.

U.S. crude production was 9.13 million barrels a day in the seven days ended Jan. 2 after reaching 9.14 million three weeks earlier, the highest in weekly Energy Information Administration data since 1983. Stockpiles were 382.4 million barrels as of Jan. 2, a seasonal high.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texasand the Bakken in North Dakota. Global oil prices below $40 begin to make wells in such places unprofitable to operate, Wood Mackenzie, an Edinburgh-based consultant, said in a report Jan. 9.

Idling Rigs

Rigs seeking oil decreased by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.

Helmerich & Payne Inc., the biggest rig operator in the U.S., and Pioneer Energy Services Corp. said last week that they had received early termination notices for rig contracts.

Producers and merchants boosted their net short position by 21 percent, or 17,577 futures and options, to 100,997 in the week ended Jan. 6, according to the Commodity Futures Trading Commission, the most since Jan. 10, 2012.

Hedge funds and other large speculators raised bullish bets by 7 to 199,395 contracts.

“You have this tension and lack of consensus among money managers of what to do with a price under $50,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone Jan. 9. “People tend to think of money managers as a black box where they all use same strategy and march in lockstep, but this highlights that it’s not really the case.”

Other Markets

Bullish bets on Brent crude rose to the highest level in more than five months, according to ICE Futures Europe exchange.

Net-long positions gained by 24,598 contracts, or 21 percent, to 140,169 lots in the week to Jan. 6, the data show. That’s the highest since July 15.

In other markets, bearish wagers on U.S. ultra-low sulfur diesel decreased 12 percent to 23,789 contracts as the fuel sank 7.6 percent to $1.7262 a gallon.

Net short wagers on U.S. natural gas fell 15 percent to 10,323 contracts. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 5 percent to $2.938 per million British thermal units.

Bullish bets on gasoline declined 0.4 percent to 44,050. Futures slumped 6.8 percent to $1.3543 a gallon on Nymex in the reporting period.

Regular gasoline slid 1.3 cents to an average of $2.139 on Jan. 10, the lowest since May 5, 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group.

The global crude oversupply is 2 million barrels a day, or 6.7 percent of OPEC output, Qatar estimates. Only 1.6 percent of supply would be unprofitable with prices at $40 a barrel, according to Wood Mackenzie.

“If you’re a producer and your cost is below the price in the market, if you hedge it even at depressed prices you can still make money,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone Jan. 9. “Somebody’s locking in profits even at these low prices.”

Goldman Sees Need for $40 Oil as OPEC Cut Forecast Abandoned

Jan. 12 (Bloomberg) 

Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market.

The bank reduced its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past, said Goldman analysts including Jeffrey Currie in New York.

The U.S. is pumping oil at the fastest pace in more than three decades, helped by a shale boom that’s unlocked supplies from formations including the Eagle Ford in Texas and the Bakken in North Dakota. Prices slumped almost 50 percent last year as the Organization of Petroleum Exporting Countries resisted output cuts even amid a global surplus that Qatar estimates at 2 million barrels a day.

Oil Prices

“To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” Goldman said in the report. “The search for a new equilibrium in oil markets continues.”

West Texas Intermediate, the U.S. marker crude, will trade at $41 a barrel and global benchmark Brent at $42 in three months, the bank said. It had previously forecast WTI at $70 and Brent at $80 for the first quarter.

Photographer: Eddie Seal/Bloomberg

A floor hand signals to the driller to pull the pipe from the mouse hole on Orion… Read More

Forecasts Cut

Goldman reduced its six and 12-month WTI predictions to $39 a barrel and $65, from $75 and $80, respectively, while its estimate for Brent for the period were cut to $43 and $70, from $85 and $90, according to the report.

“We forecast that the one-year-ahead WTI swap needs to remain below this $65 a barrel marginal cost, near $55 a barrel for the next year to sideline capital and keep investment low enough to create a physical re-balancing of the market,” the bank said.

Goldman estimates there’s sufficient capacity to store a surplus of 1 million barrels a day of crude for almost a year. It expects the spread between WTI and Brent to widen in the next quarter as discounted U.S. crude prices and “strong margins lead U.S. refineries to export the glut to the other side of the Atlantic.”

The Brent-WTI spread will average $5 a barrel in 2016, according to the bank. The gap was at $1.50 today.

 

Houston, We Have An Oil Investor Problem : Survival

Photographer: Dmitry Beliakov/Bloomberg

Hedge Funds Cut Oil Bets After Worst Drop Since 2008

 

 

 

(And it will get worse -

Oil Companies and Investors In Denial : Portfolio Profits At Risk - Jack A. Bass)

Oil’s dramatic fall in price will have serious effects on revenues and spending in the sector, according to some industry analysts, with one investment firm predicting a sector-wide “recession” that will last for several years.

Both U.S. crude and Brent futures fell to fresh 5½-year lows on Tuesday, with the former slipping below $48 at one stage. Weak global demand and booming U.S. oil production are seen as the key reasonsbehind the price plunge, as well as OPEC’s (Organization of the Petroleum Exporting Countries) reluctance to cut its output.

This sector slump will lead to a fight to the death for oil firms, according to analysts at Bernstein Research. The research firm likened the current environment to the Hollywood movie “The Hunger Games”, which portrays a dystopian post-apocalyptic future where the main protagonists battle each other to survive.

“Our research convinces us an oil services recession is largely unavoidable at even $80 a barrel…The Hunger Games have begun,” Nicholas Green, a senior analyst at the company, said in a note on Tuesday morning.

Bernstein’s Green believes that offshore activity will also face a “structural recession.” He predicts that there will be only half of the new work available in 2015, compared to last year, and forecasts no material recovery before 2017.Hedge funds reduced bets on rising oil prices for a second week as futures extended their worst plunge since 2008.

Speculators pared their net-long positionin West Texas Intermediate crude by 3.6 percent in the week ended Dec. 30, U.S. Commodity Futures Trading Commission data show. Short wagers jumped 12 percent, the first gain in six weeks.

The U.S. benchmark price sank 46 percent last year as domestic oil output reached a three-decade high and OPEC produced more than its target for a seventh month. The International Energy Agency has cut its estimate for global demand as economies outside the U.S. are expected to grow more slowly, adding to a supply glut.

Oil Prices

“You had the combination of weak fundamentals and a shift in market psychology,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said yesterday. “People realized that there’s no imminent market tightness, and this caused big selloffs.”

WTI fell $3, or 5.3 percent, to $54.12 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures declined $1.16, or 2.3 percent, to $48.88 a barrel at 8:46 a.m. after sliding to $48.47, the lowest since April 2009.

U.S. crude production was 9.12 million barrels a day in the seven days ended Dec. 26 after reaching 9.14 million two weeks earlier, the highest in weekly government data since 1983.

Global Production

Crude stockpiles in the U.S. were 385.5 million barrels as of Dec. 26, while gasoline suppliesincreased to 229 million, the highest seasonal levels in weekly Energy Information Administration data.

Russian oil production rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said.

“The consistent production around the world is overwhelming demand,” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said yesterday. “It looks like prices will keep making new lows.”

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

Saudi Prices

“Everybody is producing as much oil as they can,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “With the shale revolution flooding the market with oil and OPEC not cutting at all, the market is fundamentally weak.”

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, produced 30.24 million barrels a day in December, according to a Bloomberg survey. The group decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna.

Saudi Arabia, the world’s biggest oil exporter, raised its price yesterday for February deliveries of Arab Light to Asia from the biggest discount in at least 14 years. The price cut last month was followed by Iraq, Kuwait and Iran, prompting speculation that Middle East producers were protecting market share.

“The Saudis refuse to cut and lose market share, to prop up prices for the rest of the world,” Hiley said. “As the price goes down, it doesn’t mean production goes away.”

Natural Gas

Net-long positions for WTI dropped by 7,551 to 199,388 contracts of futures and options in the week ended Dec. 30, according to the CFTC. Long positions fell 0.4 percent to 259,613 and short bets climbed to 60,225.

In other markets, bearish wagers on U.S. ultra low sulfur diesel increased 11 percent to 27,087 contracts as the fuel sank 6.1 percent to $1.8688 a gallon.

Wagers on U.S. natural gas swung to net short position of 12,130 contracts in the week ended Dec. 30 from net long of 3,648 in the previous week. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 2.4 percent to $3.094 per million British thermal units.

Bullish bets on gasoline tumbled 10 percent to 44,226. Futures slumped 7.4 percent to $1.4537 a gallon on Nymex in the reporting period.

Regular retail gasoline dropped 0.5 cent to an average of $2.194 yesterday, the cheapest since May 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group. U.S. drivers may save as much as $75 billion at gasoline pumps in 2015, AAA said on Dec. 31.

“People realized how bearish the fundamentals are,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s probably the worst of times for hedge funds. For drivers, it’s probably the best of times.”

 

The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.

The mid-cap and small-cap operators are going to be hardest hit because this is all driven by their cost to produce,” said Gianna Bern, founder of Brookshire Advisory and Research Inc., who also teaches international finance at the University of Notre Dame.

An index of 43 U.S. oil and gas companies lost about one-fourth of its value since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20.

Have you avoided these sectors  ?– you would have been better off  and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Jack A. Bass Managed Accounts

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds at the rate of 1 % monthly if you require an income stream.

Contact information:

To learn more about portfolio management , tax reduction,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Telephone  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

OIL Declines – (as we forecast) – Expect ” more of the same “

Oil Falls to 5 1/2-Year Low as Russia, Iraq Boost Output

Oil dropped to the lowest since May 2009 amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.

Futures headed for a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest level in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday.

Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.

Oil Prices

“We’re seeing more of the same,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The Chinese and European PMI figures signal weaker demand, while there’s ever-increasing supply. Nobody is cutting back on output and now the Russians are posting post-Soviet production highs.”

Brent for February settlement fell 53 cents, or 0.9 percent, to $56.80 a barrel on the London-based ICE Futures Europe exchange at 11:31 a.m. It declined to $55.48, the lowest since May 7, 2009. Volume for all futures traded was 30 percent below the 100-day average. The European benchmark slumped 48 percent last year, the second-biggest annual loss on record behind a 51 percent tumble in the 2008 financial crisis. Brent traded at of $3.24 premium to WTI.

West Texas Intermediate for February delivery rose 32 cents, or 0.6 percent, to $53.59 a barrel on the New York Mercantile Exchange after dropping to $52.03, the least since May 1, 2009. Volume for all futures traded was 34 percent below the 100-day average. Prices are down 3.2 percent this week.

The surge in oil supplies in Iraq and Russia signaled no respite in early 2015 from the glut that’s pushed crude prices lower. The two countries provided 15 percent of world oil supply in November, according to the International Energy Agency.

Russian oil output rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed today by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesmanAsim Jihad said.

The final two burning crude-storage tanks were extinguished at Es Sider, Libya’s biggest oil port, National Oil Corp. spokesman Mohammed Elharari said by phone from Tripoli. The fires started Dec. 25, when Islamist militants shot rockets at the port in a second attempt to capture it.

OPEC Production

OPEC’s production slid by 122,000 barrels a day from November to 30.24 million last month, led by losses in Saudi Arabia, Libya and the United Arab Emirates, a Bloomberg survey of companies, producers and analysts shows. The 12-member group has a collective target of 30 million a day.

U.S. oil production averaged 9.12 million barrels a day in the week ended Dec. 26, according to the Energy Information Administration. Output increased to 9.14 million a day through Dec. 12, the most in weekly data that started in January 1983.

Inventories of gasoline surged in the week ended Dec. 26 as production climbed to a record, EIA data showed.

Gasoline futures declined 3.14 cents, or 2.1 percent, to $1.4407 a gallon in New York. Diesel decreased 3.18 cents, or 1.7 percent, to $1.8018.

Regular gasoline at U.S. pumps fell to the lowest level since May 2010. The average retail price slipped 0.9 cent to $2.231 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

Sector will respond to the lower commodity price but their share price will decline – example;

NEW YORK (MarketWatch) — Linn Energy LLC LINE, +15.20% said Friday it has approved a 2015 budget that cuts oil and natural gas capital spending to $730 million from about $1.55 billion in 2014, the latest company to respond to the recent slide in crude oil prices. “After careful consideration, LINN’s senior management proposed and the Board of Directors approved a 2015 budget that contemplates a significantly lower current crude oil price than in 2014,” Chief Executive Mark Ellis said in a statement. The budget assumes an unhedged NYMEX price of $60 a barrel. The company is cutting its annual dividend to $1.25 a share from $2.90, he said. Linn Energy has signed a non-binding letter of intent with GSO Capital Partners LP, the credit arm of The Blackstone Group LP BX, +0.56% to fund oil and gas development. GSO has agreed to commit up to $500 million to fund drilling programs. Shares were down 6.2% in premarket trade.

Three weeks after Chairman Steve Schwarzman said it’s going to be the best time in years to invest in energy, Blackstone Group LP (BX) is putting money to work.

Blackstone’s $70 billion credit arm, GSO Capital Partners, committed as much as $500 million to fund oil and natural gas development for Linn Energy LLC (LINE), according to a statement today. The Houston-based energy producer rose as much as 18 percent after the announcement, after losing almost 70 percent of its value in six months as crude prices plummeted.

Private equity firms, while taking steps to shore up energy companies in their portfolios, are hunting for investments in oil and gas producers after Brent tumbled more than 50 percent since June. Energy presents the best opportunity for Blackstone in many years, especially for the New York-based firm’s credit unit, Schwarzman said at a Dec. 11 conference.

“There are a lot of people who borrowed a lot of money based on higher price levels, and they’re going to need more capital,” he said at the conference in New York. “There are going to be restructurings to do. There’s going to be a fallout. It’s going to be one of the best opportunities we’ve had in many, many years.”

Photographer: Patrick T. Fallon/Bloomberg

Steve Schwarzman, co-founder, chairman and chief executive officer of Blackstone Group

Under the five-year agreement with Linn, Blackstone would fund drilling programs at locations selected by Linn for an 85 percent working interest in the wells, according to the statement. If the projects produce a 15 percent annualized return for Blackstone, its stake will drop to 5 percent.

Oil ‘Crisis’

The plunge in oil may usher in a new era for investing in distressed debt, according to Howard Marks, the billionaire co-founder of Oaktree Capital Group LLC. In a letter to clients last month, Marks said his Los Angeles-based firm is becoming more aggressive as companies that borrowed heavily in the low-interest rate environment now come under pressure.

“We knew great buying opportunities wouldn’t arrive until a negative ‘igniter’ caused the tide to go out, exposing the debt’s weaknesses,” Marks wrote. “The current oil crisis is an example of something with the potential to grow into that role.”

Linn, a master-limited partnership, is the latest producer to cut spending on expectations of lower oil and gas prices. The company said today it expects oil to average $60 a barrel in 2015, although it has hedged about 70 percent of its expected output at higher prices. Brent fell 1.9 percent to $56.23 a barrel at 2:38 p.m. in New York.

Active Developer

The agreement with Blackstone, which is non-binding, is “designed to allow Linn to be an active developer of assets with growth capital,” Mark Ellis, Linn’s chief executive officer, said in the statement. “This agreement creates a dynamic alliance.”

The company’s shares rose 13 percent to $11.44 at 2:47 p.m. in New York.

Please see our recent articles published this week on  2015 Energy Sector Forecasts ( archived) 

 

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